Issues and options for farm financing in Australia

Agricultural investments in Australia are innately risky, as evidenced by the variability in climate, commodity prices and the exchange rate over the last decade. These risks, when combined with the banking reforms that followed the global financial crisis, have caused many banks to be more conservative in their lending policies. For farmers, especially those who are debt-laden, their access to debt finance is often now more proscribed.

The result is that some farm businesses will expand more gradually than might otherwise have occurred and that land price appreciation may also be affected by there being both fewer buyers among the farmer population and greater restrictions on lending. These outcomes may cause greater reliance on other sources of capital investment in Australian agriculture. Greater foreign investment and perhaps more corporate farming may occur. Equity rather than debt financing may feature more in agricultural development. Novel business structures may address some of the risk problems that characterise Australian farming and its historical reliance on debt-financing. In concert, these financing and structural changes may promote a more productive and profitable agriculture sector in Australia.